Many income investors like to chase stocks with big yield.
However, it’s important to remember that dividend stocks are really only worth your attention if they continue to pay you for the long haul.
After all, what’s the point of buying a mediocre stock with a big yield today just to see its shares slump and dividends ultimately cut or eliminated? Sometimes it makes sense to go after companies that are steadily paying bigger and bigger dividends rather than a firm that simply has the biggest yield.
The following five big-name stocks are all noteworthy either because of the size of their recent increases, their long-term history of distributions – or both:
Let’s begin with megastock Apple, which declared a quarterly dividend of 22 cents in May – a 7% boost from its prior level of 20.5 cents per share per quarter. The current yield on the stock remains less than 1%, but if you look at the dividend history of other Big Tech companies, it’s still noteworthy to see Apple continually build on its payouts.
And let’s face it, with AAPL stock up nearly 450% in the last five years, roughly four times the gains of the S&P 500, many investors aren’t even interested in the income potential here. Take note that distributions have jumped at a roughly 10% annual rate over the last five years – and are up more than 130% from 2012 when the tech giant reinstated its dividend.
This trend shows CEO Tim Cook and the company are committed to long-term shareholder value and not just quick wins for day traders.
The $75 billion insurance giant Chubb just approved a rather modest increase in payouts of roughly 3% in May, from 78 cents quarterly to 80 cents.
However, as longtime income investors know, Chubb isn’t necessarily noteworthy because of the size of its dividend but because of the reliability. CB stock has increased distributions once a year for 28 years running – putting it on the S&P 500’s list of “dividend aristocrats,” companies that have increased their dividends for at least 25 constitutive years – and the well-run financial stock has an enviable cash position and strong balance sheet thanks to the regular premiums from customers.
That makes it very attractive to long-term investors, and the May dividend hike is further proof that patience can pay off with this stock.
In early June, cleaning products giant Clorox announced a 5% increase in its quarterly dividend from $1.11 to $1.16 per share. The larger distributions will become payable to shareholders on Aug. 13.
While not a mammoth increase, Clorox has a long history of providing value to shareholders via roughly 20 consecutive years of dividend increases and some form of dividends paid for more than 50 consecutive years.
Admittedly, CLX stock has lagged lately as it has rolled back from its pandemic-level highs driven by huge demand for bleach and other sanitizing products. That said, the dividend yield is still pretty good for this consumer staples stock and the track record of continued increases is noteworthy.
At the end of May, home improvement giant Lowe’s announced its dividend would jump to 80 cents per share, payable on Aug. 4. That’s a huge 33% boost from its prior payout of 60 cents, and more than double the 35 cents per share it was paying five years ago.
And in the longer term, it’s worth noting that Lowe’s has paid a cash dividend every quarter since going public in 1961, ranking among Wall Street’s dividend aristocrats as well.
Management said the huge increase recently is based on “the company’s continued business momentum, its growth trajectory and strong cash flow generation.” Perhaps understandably, shares have outperformed the broader market nicely in 2021 with year to date returns of nearly 20% versus about 14% or so for the broader S&P 500 in the same period.
Union Pacific Corp. (UNP)
Iconic railroad operator Union Pacific announced in mid-May that it increased the quarterly dividend on its common stock by 10%, up to $1.07 per share from 97 cents previously.
What’s more, even with this increase, UNP is still paying out less than 50% of profits for a very comfortable and sustainable distribution schedule – and one that’s ripe for future increase.
Founded in the 1860s and currently operating more than 32,000 miles of track and 8,300 locomotives in its fleet, it’s hard to imagine competition is coming for this industrial stalwart anytime soon. And given its strong financial situation and recent dividend boost, it could be worth considering UNP for your own long haul of investing for income.